Problem
Michaels, Inc., purchased a machine for $75,000. The machine has a useful life of five years and no salvage value. Straight-line depreciation is to be used. The machine is expected to generate cash flow from operations, net of income taxes, of $30,000 in each of the five years. Michaels' expected rate of return is 10%. Information on present value factors is as follows:
|
Period
|
Present value of $1 at 10%
|
Present value of ordinary annuity of $1 at 10%
|
|
1
|
0.90909
|
0.90909
|
|
2
|
0.82645
|
1.73554
|
|
3
|
0.75132
|
2.48685
|
|
4
|
0.68301
|
3.16986
|
|
5
|
0.62092
|
3.79079
|
What would be the net present value?